Are the price of flats in London about to fall?

I'd have said a categorical "no" except for "selective" mandatory licensing, which makes an area less appealing to landlords, increases running costs (especially in Croydon where they're proposing £1000 fee per property, all payable up front...) and when I spoke to my mortgage broker last week he told me a lot of lenders are wary about licensed properties, as it suggests there's a problem with the area.

In addition, I've just learned that the Bank of England are requesting additional powers from government to regulate BTL mortgages. This would mean such borrowing would be stress tested, the same as residential mortgages, and in areas of high property prices such as London, could mean BTL investors having to put down a 40% deposit! I dismissed it as headline grabbing hype, until I realised it was published by Countrywide... http://www.countrywide.co.uk/news/countrywide-quarterly-lettings-index-q3-2014/ This is likely to price all but the wealthy out of the BTL market in the South East. I only hope that if this is brought in a very robust house building program is implemented at the same time, in addition to a scheme to enable landlords to exit the market which includes relaxation of capital gains tax rules.

I'd say your right there and according to this article we are set to see prices raise for the next 5 years.

http://www.theguardian.com/business/2014/oct/10/rightmove-house-prices-rise-30-per-cent-five-years-outside-london

Guess where I have a property...Croydon! So I hope this selective licensing doesn't come in to force!

I'm actually looking in that area as we speak as apart from that licensing issue..which to be honest I had forgotten about, I think the area is one of the overlooked boroughs of London great transport links, a number of the old large office blocks have been newly refrub and are ready for new tenants after sitting empty for years, you have new build luxury developments ,Westfields shopping centre planned for 2018 I think Croydon has a lot going for it, and with the surround area being drastically higher in prices I think more and more people will consider living in the area if not for the amenities then the price.

Thanks for highlighting the licensing issue.

Mandy makes an interesting point and as we are in a borough who are bringing in licensing I just took a look at Newham to see how prices have fared there. Prices are up dramatically, despite the fact that licensing was brought in I believe, in 2013. Whilst I feel uncertain about the implementation of it and I hope we will not have to make any alterations that we feel are unnecessary, I cannot help thinking it could well make a change for the better...I certainly hope so. If that is the case then I can see that prices would not change. Even having said that, rents are high in our area so in this era of buy to let we cannot see any reason for prices to drop hardly at all, as the yield remains good!

Frankly, I have only ever seen small BTL as a main UK housing provider as a stop gap, which undoubtedly will begin to subside once more housing is built and the housing crisis lessens.

If property prices do continue on their present trend, there will come a point in the future when property ownership (either residential or BTL) will only be for large stakeholders such as developers, councils, housing associations, large companies and a few wealthy individuals. We're already seeing public/private partnerships where mixed tenure estates are being built that are co-owned by public/private consortiums, then let at "affordable" rents, public housing rents and high rents with others being sold.

I believe UK housing is gradually moving toward a German model where most people rent from large housing providers (public and private) and the average person would only realistically consider buying as they approach retirement. Provided ordinary people are able to own a small stake with good returns in this venture via some sort of crowd funding model this wouldn't be such a bad thing.

While this might happen within the next 20 years or so as a matter of course, it seems to me that there are a lot of parties that want to bring this about now (except of course at present we don't have the replacement housing).

As we know, a lot of individuals outside of the PRS are very envious of BTL landlords, seeing us a making an easy profit at the expense of those unable to buy, and even preventing them from buying by inflating property prices - these same people, however, don't seem to have such a problem with large organisations owning and profiting from property ("my neighbour not live better that I do" http://web.econ.unito.it/gma/massimo/sdt/sdt/mui95.pdf). In addition, larger organisations such as some councils mistrust private landlords (and I don't doubt that some individual councillors are even ideologically opposed to BTL landlords) i.e. licensing. We also have Ed Milliband proposing legislation that would damage confidence in the BTL market, and now it seems that the Bank of England (BoE) wants to jump on the bandwagon by choking off BTL financing; like all businesses, BTL requires financing (both to start up and expand) and without this just isn't viable.

Reply to the comment left by "James London" at "13/10/2014 - 23:14":

Hi James,

I agree that Croydon is overlooked, and definitely doesn't deserve the public image it has. I grew up there and still have many ties with the area (aside from the property I own there). Just one reason why the stance being taken by the new council is so sad and misguided.

I don't know what sort of budget you have and what kind of property you're looking for, but definitely if you're a small investor looking at older property, I would strongly advise you to think again. Older properties can be difficult to maintain (both because of issues inherent in the property and because good tradesmen are hard to find) and can swallow up a sinking fund. Under licensing, failure to maintain property adequately is a criminal offence. In addition, the £1000 fee is payable up front; while you might easily afford this now, after 5 years of high property maintenance costs you might not have the funds to renew the licence, and with strict lending criteria which is likely to get even stricter you could easily find yourself unable to get a further advance or remortgage to raise it.

I would look at adjoining boroughs (such as Sutton and Bromley) that don't have plans to introduce licensing. You might be pleasantly surprised at property prices there.

See the thread I started on 118 about the Croydon licensing scheme: http://www.property118.com/croydon-yet-another-area-introduce-selective-licensing/66774/. A lot of Croydon landlords are sleep walking into this and just don't realise the impact this will have.

I believe prices will fall in london once interest rates rise. price rises (and rent rises) are unsustainable.

HI Mandy,

I read your thread regarding selective licencing and have heeded your advice and held fire on getting another property in Croydon, my budget was in the region of 180k. Also on reflection after seeing some of the flats from the new tower development already on the market at prices close to what an older 1 bed would rent for, presumable when these properties are completed a proportion of these apartments are going to make it on to the rental market, it then could become quite crowded market for those looking to let 1-2 beds?

What are your thought on student properties outside of London? There have been some that have residential usage status which would give you the opportunity to raise a mortgage after the cash purchase and they advertise rental yields of 6-8%+?

Reply to the comment left by "James London" at "17/10/2014 - 12:04":

Hi James,

If there's one small consolation to come from licensing putting you off investing in Croydon, it's just one example of many landlords doing so. The new Croydon council is keen to encourage investment and redevelopment in the borough, so this might make them begin to re-consider. Today is the last day for landlord consultation, so is it OK if I pass your comments on to the cabinet?

I'm afraid I'm not the person to advise you on student lets, as I have no experience of investing in this market. However, I once had student tenant neighbours; some of them were perfect tenants, a lot of them liked to party till the small hours (on occasion) while others were the tenants from Hell... However, I never go by yield alone; high yields usually come with low priced property, which is a low price for a reason (usually lack of jobs and/or infrastructure in the area). If you look through many landlord forums, you'll see posts from people who've invested in property in such areas and had many problems.

Reply to the comment left by "Mandy Thomson" at "17/10/2014 - 14:07":

yeah go for it

Just sold my flat in Newham, no wish to let under this counci's attitude to landlords with their blanket licensing scheme. Will concentrate on my portfolio in the north instead.